T&S Legislation 2016 – end of road for Umbrella Payroll companies?

On 9th Dec 2015, the government confirmed its intention to amend the Travel & Subsistence legislation by introducing two new sections 339A and 688B into the Income Tax Earning & Pensions Act (ITEPA). The amendments will come into effect from April 2016. These amendments will mean that most of the contractors under ordinary circumstances will not be able to claim relief on travel & subsistence cost incurred towards normal travel from home to work.

The legislation will affect any worker working through an intermediary such as an Umbrella company, Personal Services Company or a Recruitment Agency. However, the eligibility to claim the relief seems to be different for Umbrella workers and the PSC workers. Refer also the separate article titled T&S Legislation 2016 – how does it affect Personal Service Companies for more details.

How does it affect Umbrella Workers?

When it comes to Umbrella workers, the legislation will affect anyone that carry out their work in a manner that is under the supervision, direction or control of another person. The damning part is that for the purpose of enforcing the legislation, all umbrella workers will be automatically assumed to be under supervision, direction or control (SDC).

Are there exceptions to Umbrella Workers?

Yes, there are two circumstances under which an Umbrella worker can continue to claim T&S expenses.

  • As stated above, any umbrella worker who is not caught by SDC test and where there is sufficient documentary evidence to prove so can claim travel and subsistence expenses as usual.
  • Travel and subsistence cost incurred by any Umbrella Worker while travelling to a “second/temporary workplace” on a single assignment, even though he/she may be caught by SDC test.

Who is Liable?

There is a transfer of liability provision starting from the Umbrella Company up to the end client including the directors/officers of the companies. The onus is on the Umbrella Company or the Intermediary to prove to HMRC that the worker is not under SDC. The umbrella company, in turn, can rely on documentary evidence provided by the agency or the end client that establishes that the worker is not under SDC. However, if the Umbrella Company fails to provide sufficient evidence, the new section 688B gives powers to HMRC to recover the unpaid tax and NI dues from the Umbrella Company or its directors/officers. If the Umbrella Company relied on a document provided by the end client and if that document proved to be fraudulent, HMRC would have the power to claim the dues from the end client.

What does it mean to Umbrella Companies?

The Umbrella companies that relied solely on the expenses as a business model will struggle to justify their role in the supply chain.  They will have to do with less or no margin at all from the contractors and re-sell their service as an enhanced payroll bureau model to the agencies.  The focus may have to turn to selling “compliance” rather than cost saving.  The likes of Auto Enrolment, RTI, AWR and WTR will become the key to the survival and the re-emergence of the Umbrella companies, and there will not be many that that can fit this gap with confidence and conviction. Even those Umbrellas that fit the bill have to do with a much less per-unit revenue than they are used to until now.

But then there are other technology-based solutions that can turn around the situation and put Umbrellas back in the driving seat without having to compromise on the revenue. If you are an Umbrella Company looking for a solution, contact us today.